Dependency theory
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Dependency theory is a body of social science theories, both from developed and developing nations, that create a worldview which suggests that poor underdeveloped states of the periphery are exploited by wealthy developed nations of the centre, in order to sustain economic growth and remain wealthy.
Dependency theory states that the poverty of the countries in the periphery is the result of how they are integrated into the world system, whereas free market economists argue that they are not 'fully' integrated.
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[edit] Basics
The premises of dependency theory are:
- Poor nations provide a destination for obsolete technology, and markets to the wealthy nations, without which the latter could not have the standard of living they enjoy.
- First World nations actively, but not necessarily consciously, perpetuate a state of dependence through various policies and initiatives. This is multifaceted, involving economics, media control, politics, banking and finance, education, sport, politics and all aspects of human resource development.
- Attempts by the dependent nations to resist the influences of dependency often result in economic sanctions and/or military invasion and control. Many dependency theorists advocate social revolution to effect change in economic disparity.
Dependency theory first emerged as a reaction to liberal free trade theories in the 1950s, advocated by Raúl Prebisch, whose research with the Economic Commission on Latin America (ECLA) found that the wealth of poor nations tended to decrease when the wealth of rich nations increased. Paul Baran developed dependency theory from Marxian analysis. The theory quickly divided into diverse schools. Some, like Andre Gunder Frank, adapted it to Marxism. "Standard" dependency theory differs sharply from Marxism, however, arguing against internationalism and any hope of progress in less developed nations towards industrialization and a liberating revolution. Theotonio Dos Santos described a 'new dependency', which focused on both the internal and external relations of less-developed countries of the periphery, derived from a Marxian analysis. Former Brazilian President Fernando Henrique Cardoso wrote extensively on dependency theory while in political exile, arguing that it was an approach to studying the economic disparities between the centre and periphery. The American sociologist Immanuel Wallerstein refined the Marxist aspect of the theory, and called it the "World-system." It is has also been associated with Galtung's Structural Theory of Imperialism.
[edit] Spread of theory
Dependency theory became popular in the 1960s and 1970s as a criticism of modernization theory (also known as development theory) that seemed to be failing due to the continued widespread poverty of large parts of the world. With the seeming growth of the East Asian economies and India in the last few years, however, the theory has fallen somewhat out of favour. It disagrees sharply with classical and free-market economics. It is far more accepted in disciplines such as history and anthropology, which can count for or against it. It can also be detected in some of the reasoning underpinning recent NGO campaigns such as Make Poverty History and the Fair Trade movement.
Dependency was said to be created with the industrial revolution and the expansion of European empires around the world due to superior power and accumulated wealth. Some argue that before this expansion, the exploitation was internal, with the major economic centres dominating the rest of the country (for example southeast England dominating Britain, or the Northeast United States dominating the south and east). Establishing global trade patterns in the nineteenth century allowed capitalism to spread globally. The wealthy became more isolated from the poor, because they gained disproportionately from imperialistic practices. This minimized the dangers of domestic peasant revolts and rebellions by the poor. Rather than turn on their oppressors as in the American Civil War or in communist revolutions, the poor could no longer reach the wealthy and thus the less developed nations became engulfed in regular civil wars. Once the imperialist rich nations established formal control, it could not be easily removed. This control ensures that all profits in less developed countries are remitted to the developed nations, preventing domestic reinvestment, causing capital flight and thus hindering growth.
[edit] Implications
While there are many different and conflicting ideas on how developing countries can alleviate the effects of the world system, several of the following protectionist/nationalist practices were adopted at one time or another by such countries:
- Promotion of domestic industry and manufactured goods. By subsidizing and protecting industries within the periphery nation, these third-world countries can produce their own products rather than simply export raw materials.
- Import limitations. By limiting the importation of both luxury goods and manufactured goods that can be produced within the country, supposedly, the country can reduce the amount of its capital and resources that are siphoned off.
- Forbidding foreign investment. Some governments took steps to keep foreign companies and individuals from owning or operating property that draws on the resources of the country.
- Nationalization. Some governments have forcibly taken over foreign-owned companies on behalf of the state, in order to keep profits within the country.
[edit] Criticism
Dependency theory has been criticized by free-market economists such as Peter Bauer and Martin Wolf, who believe it will lead to:
- Corruption. State-owned industries may have a higher rate of corruption than privately owned companies.
- Lack of competition. By subsidizing in-country industries and preventing outside imports, these companies may have less incentive to improve their products, to try to become more efficient in their processes, to please customers, or to research new innovations.
Proponents of dependency theory claim that the theory of comparative advantage breaks down when capital - including both physical capital like machines and financial capital - is highly mobile, as it is under the conditions of globalization. For this reason, it is claimed that dependency theory can offer new insights into a world of highly mobile multinational corporations.
This is countered, however, by the argument that the conditions of globalization make comparative advantage all the more sound. Two of the key assumptions of comparative advantage - zero transportation costs and zero communication cost - are arguably more realistic in the contemporary global marketplace than in earlier times. Whilst zero communication costs are supported by the internet, it would appear, however, that the theory of the tendency to zero transport costs is a temporary feature of peak oil. Furthermore, the assumptions of free trade models only ever includes two factors of production - namely the globalisation of capital and resources, but not labour. Currently the free movement of labour is being restricted world-wide with various forms of immigration control.
Market economists point to many examples they claim disprove dependency theory: the improvement of India's economy after it moved from state-controlled business to open trade is one of the most often cited (see also economy of India, Commanding Heights). India's example seemingly contradicts dependency theorists' claims concerning comparative advantage and mobility, as much as its economic growth originated from movements such as outsourcing - one of the most mobile forms of capital transfer. However, South Korea was able to rise out of poverty using many tenets which Dependency theory advises.
Free market thinkers see dependency theorists' complaints as legitimate, but their policy prescriptions as self-fulfilling prophecies, in that the policies only aggravate the disparity between the developed nations and under-developed nations by isolating them from free markets. Liberal trade advocates see the current structure of capitalism and trade favoring the capital owners rather than consumers, but also believe that dependency theorists' prescriptions lead only to more wealth for the capital owners and more poverty for the third world; meaning that their advocacy of restricted trade and self development leads to the same outcome as mercantilist trade as experienced under colonialism. Free market thinkers criticize dependency theory because it conflates free market economics with current capitalist economic trading arrangements, and thus assumes that free market international trade will not increase economic growth and development.
Dependency Theory has also been accused of being unfalsifiable according to the critera of philosopher Karl Popper and thus unscientific. [1]
[edit] See also
[edit] External link
[edit] Footnotes
- ^ The Rise and Fall of the Dependency Movement: Does It Inform Underdevelopment Today?. OMAR SÁNCHEZ. Retrieved on 01 March 2007.
